Cost Classification and Behavior in Managerial Accounting

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What is the importance of cost classification in managerial accounting?

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Understanding cost classification is crucial for effective decision-making and financial management.

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What are production costs?

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Costs incurred in the production of goods or services, including raw material costs, direct labor costs, and factory overhead costs.

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What are non-production costs?

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Costs not related to the production process but essential for sales and administration, such as marketing and administrative costs.

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What are raw material costs?

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Costs of materials that can be directly identified in the manufacture of products.

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What are direct labor costs?

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Costs paid to workers directly involved in the production of goods or services.

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What are factory overhead costs?

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Expenses that cannot be directly associated with specific products but are necessary for production operations.

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How are overhead costs typically allocated?

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Using predetermined rates based on factors like direct labor hours or machine hours.

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What are marketing costs?

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Expenses related to selling and distributing products, including advertising and sales team salaries.

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What are administrative costs?

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Costs associated with managing the company, including management salaries and office expenses.

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What are fixed costs?

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Costs that remain constant regardless of production or sales volume.